Question

Sammy has an import business where he buys olives from Greece and resells them in the U.S. He has negotiated with his Greek supplier for a price of 16 Euros per bottle. Sammy resells them in the U.S. at $18.00 a bottle. Sammy buys and sells 2,000 bottles of olives..

Using the assumptions about Sammy's import business from the above information , what would Sammy's profit margin be if the exchange rate was .9865 USD per Euro?

A.10.22%
B.12.31%
C.23.06%
D.24.55%

Answer 1

To calculate Sammy's profit margin, we need to determine his total cost and total revenue.

Step 1: Calculate the total cost:
Sammy buys and sells 2,000 bottles of olives. He buys each bottle for 16 Euros. To convert this to USD, we use the exchange rate of .9865 USD per Euro. So the cost per bottle in USD is 16 * .9865 = $15.784.
Therefore, the total cost is 2,000 * $15.784 = $31,568.

Step 2: Calculate the total revenue:
Sammy sells each bottle for $18.00. Therefore, the total revenue is 2,000 * $18.00 = $36,000.

Step 3: Calculate the profit margin:
Profit margin is calculated by dividing the profit by the total revenue and multiplying by 100.
Profit = Total Revenue - Total Cost = $36,000 - $31,568 = $4,432.
Profit Margin = (Profit / Total Revenue) * 100 = ($4,432 / $36,000) * 100 = 12.31%.

Therefore, Sammy's profit margin would be 12.31%, which corresponds to option B.